Autumn Statement: what could it mean for the PRS?

The Chancellor, Philip Hammond, has now delivered his first Autumn Statement and, as expected, it included a keen focus on the property market and the UK's housing shortage.

This year's Autumn Statement was arguably the most striking Government address for the Private Rented Sector (PRS) delivered since the Summer Budget of 2015, in which George Osborne announced a series of controversial tax measures.

Last year's Spending Review, in place of an Autumn Statement, was notable for the proposal of a 3% stamp duty surcharge on buy-to-let properties and second homes, while the Budget earlier this year saw a number of housing policies confirmed.

As the industry starts to digest and analyse Hammond's range of property and housing measures, we've taken a look at how they could affect landlords, letting agents and tenants...

Letting agent fees to be banned

The biggest and perhaps most surprising news for our industry actually broke the night before the Chancellor delivered his Autumn Statement. After many failed Bills and petitions, the Government will seek to ban letting agent fees charged to tenants in England and Wales.

The news could render the Renters’ Rights Bill, which had been advancing through Parliament and planned to ban fees, somewhat surplus to requirements.

The push for a ban on fees represents something of a U-turn from the Conservative Government. In September, Housing Minister Gavin Barwell tweeted that he thought a ban was a ‘bad idea’ and that the Government was looking at ‘other ways’ to cut costs and raise standards in the PRS. What’s more, the Prime Minister, Theresa May, has voted against a ban on two previous occasions.

The Government estimates that a ban on fees will affect almost five million tenants across England, saving the typical renter approximately £300 at the start of every tenancy.

Industry analysis of the decision has focused on the notion that letting agents could now need to pass costs on to landlords, who could, in turn, recoup the funds by charging tenants higher rents.

While delivering his Autumn Statement, the Chancellor explained that ‘unregulated fees’ have spiralled often to ‘hundreds of pounds’.

“This is wrong. Landlords appoint letting agents and landlords should meet their fees,” he said.

There’s been a ban on fees in place in Scotland since 2012, but there’ve been differing opinions on its success, with little information showing whether it’s helped tenants or not.

In recent months, a number of trade bodies - most notably the National Approved Letting Scheme - have called for the Government to explore the idea of a fee cap, rather than an outright ban.

It seems the Government will now launch an official consultation before implementing the ban at a further date. The Chancellor indicated in his speech that he’d like the ban to be introduced ‘as soon as possible’.

Reaction:

David Cox, Managing Director of the Association of Residential Letting Agents

“A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market. This decision is a crowd-pleaser, which will not help renters in the long-term.

“Most letting agents do not profit from fees. Our research shows that the average fee charged by licenced agents is £202, which we think is fair, reasonable and far from exploitative.

“These costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents.”

Richard Lambert, Chief Executive Officer at the National Landlords Association

“There’s no doubt that some unscrupulous agents have got away with excessive fees and double-charging landlords and tenants for far too long.

“Banning letting agent fees will be welcomed by private tenants, at least in the short-term, because they won’t realise that it will boomerang back on them.

“Adding to landlords’ costs, on top of restricting their ability to deduct their business costs from their taxable income, will only push more towards increasing rents.”

Alan Ward, Chairman of the Residential Landlords Association

“This will not help tenants, especially those who are ‘just managing’. Agents’ fees have to be paid by somebody.

“It would have been much better for the Government to have taken steps to improve the transparency of fees charged by agents by forcing them to publicise what the fees actually cover.”

While the majority of letting agents and industry commentators have condemned the move to ban fees, a few have come out in support of the proposed measure.

Scottish agency GKD Galbraith has welcomed the move and the prospect of encouraging a ‘more transparent lettings market’.

The firm's Lettings Partner, Bob Cherry, said that despite a ban being introduced in Scotland, 'prices in the lettings sector [have] remained relatively unchanged as market conditions including landlord supply and tenant demand, determine rental prices.’

Meanwhile Jeff Doble, Chief Executive of 60+ branch London agency Dexters, said: "We broadly welcome the Government's action on this. We would prefer to see compulsory regulation of letting agents but this is a step in the right direction."

Housebuilding and new homes:

The Chancellor also announced a range of measures designed to kick-start the housebuilding industry and tackle the UK’s housing shortage.

There’ll be a £2.3 billion Housing Infrastructure Fund, which will aim to assist in providing the infrastructure for up to 100,000 new properties in areas with high buyer demand.

What’s more, £1.4 billion will be put aside in order to support the delivery of 40,000 affordable homes.

Hammond also confirmed that he’ll ‘relax’ restrictions on Government grants so that a wider range of housing types can be provided.

Reaction:

Eleanor Deeley, Residential Partner at Cushman & Wakefield

“The Government’s new £1.4 billion to fund 40,000 new affordable homes (£35,000 per home) is a very welcome contribution to the affordable market. There are many ways in which this could be utilised and whether it is through the direct purchase of land, or whether it is through gap funding across more sites, it will certainly go a long way."

Mark Hayward, Managing Director of the National Association of Estate Agents

"The Housing Instructure Fund, as well as the fund to build affordable homes in London will act as catalysts to start closing the gap between supply and growing demand, but what we really need to see now is properties being built quickly. The Government has a history of announcing numerous building pledges, but in the last few years, we’ve not seen a sufficient impact on supply."

A number of property agents and industry commentators made clear their dismay that the Chancellor ignored calls for stamp duty to be reduced and buy-to-let mortgage tax changes to be abolished.

Other housing measures:

- continued support for the Help to Buy: Equity Loan scheme and the Help to Buy ISA- implementation of a large-scale regional pilot of Right to Buy for Housing Association tenants- an additional £3 billion fund set aside for 90,000 affordable homes in London

At the end of delivering his first Autumn Statement, Philip Hammond confirmed that it would, in fact, also be his last. The Chancellor’s abolished the Autumn Statement going forward, meaning that there’ll now be just one annual Budget from Autumn 2017.

Resources

Quick Links

HomeLet is a leading supplier of Landlord Insurance, Tenant Referencing and Tenant Insurance. HomeLet is a trading name of Barbon Insurance Group Limited which is authorised and regulated by the Financial Conduct Authority for insurance mediation.
Registered in England number 3135797. Registered office address: Hestia House,Unit 2 Edgewest Road,Lincoln LN6 7EL.